BlackRock Worthless to Argentina as Singer Seen Winning

BlackRock, Gramercy Funds and other investors holding Argentina’s restructured bonds said in a Dec. 28 court filing that the order threatens their rights to receive payment. Photographer: Scott Eells/Bloomberg

Feb. 27 (Bloomberg) -- Bond traders are becoming convinced
Argentina will lose its case against holdout creditors in U.S.
courts, dismissing the support of money managers including
BlackRock Inc. that backed the nation’s claims.

The extra yield that investors demand to own Argentina’s
overseas bonds due in 2017 over the same notes issued under
local law surged to a record 2.46 percentage points last week.
The 2017 debentures governed by New York law now yield 15.66
percent, more than triple the average in emerging markets.

An appeals court heard arguments today on U.S. District
Court Judge Thomas Griesa’s November decision ordering
Argentina to repay holders of debt from its $95 billion default
in 2001 when it pays its performing bonds. The deepening rout on
the overseas debt is a sign that arguments filed by BlackRock
and Gramercy Funds Management LLC, which own the notes from
restructurings in 2005 and 2010, will fail to sway the court in
Argentina’s favor, Barclays Plc said. Local dollar notes have
gained on speculation they will be out of the court’s reach.

“The market is seeing the probability the court will rule
in favor of the holdouts is about as high as in November, when
things were already looking pretty bleak for Argentina,”
Sebastian Vargas, an analyst at Barclays in New York, said in an
e-mail. “The market adjusted to reflect the same chances of
success. The briefing period added little substance.”

Won’t Comply

Norma Madeo, spokeswoman for the Economy Ministry, declined
to comment. Economy Minister Hernan Lorenzino and Vice President
Amado Boudou traveled to New York for the hearing. The appeal
arguments started at 2 p.m. New York time.

Argentina “won’t voluntarily comply” with the rulings if
the appeals court upholds them, Jonathan Blackman, a lawyer for
the country, said today during the hearing. “If that’s the
confrontation the court seeks with the injunctions, that is the
court’s decision.”

The country will default on restructured debt if forced to
pay defaulted bonds, Blackman said.

The republic claims that the order violates its
sovereignty, exposes it to more than $43 billion in additional
claims it can’t pay and threatens efforts by other countries to
restructure sovereign debt.

Yields on bonds governed by foreign law rose above those of
local law for the first time on Nov. 1, four days after the U.S
appeals court upheld Griesa’s decision that a clause in the
bonds known as pari passu, or “equal footing” in Latin, means
that Argentina must treat all bondholders equally and make
payments to holders of defaulted debt.

Foreign Legislation

Argentina has $27.4 billion of bonds sold under foreign
legislation, equal to about 15 percent of its $183 billion in
restructured debt, according to data from the economy ministry.

Forty-seven percent of outstanding bonds sold by Latin
American governments, or $206.3 billion, were issued under New
York law, data compiled by Bloomberg show.

“Local law bonds are protected from the outcome of this
case,” said Agostina Nieves, an analyst at Buenos Aires-based
brokerage Puente Hermanos SA. “That’s why there’s greater
demand for them.”

BlackRock, Gramercy Funds and other investors holding
Argentina’s restructured bonds said in a Dec. 28 court filing
that the order threatens their rights to receive payment.

The holders of restructured debt issued in 2005 and 2010
said it’s a “near certainty” that Argentina won’t make
payments on any bonds if the lower court’s order stands,
according to the filing.

‘Highly Naive’

Brian Beades, a spokesman for New York-based BlackRock,
didn’t respond to telephone calls or e-mails seeking comment on
the brief. Katrina Allen, press official for Gramercy, declined
to comment.

“It’s a highly naive view because there’s no question that
if there’s a default, that would affect all bonds,” he said in
a telephone interview from London. “We’ve held New York and
U.K. law but we’re happy to not hold any Argentine debt now.”

The extra yield that investors demand to hold Argentine
government dollar bonds instead of U.S. Treasuries narrowed 17
basis points, or 0.17 percentage point, to 1,097 basis points at
5:09 p.m. in New York, the highest in emerging markets after
Belize, according to JPMorgan Chase & Co.’s EMBI Global index.
The peso fell 0.05 percent to 5.0405 per dollar.

‘Vultures’

The price of credit-default swaps to insure $10 million of
Argentine government debt against default for five years has
surged 907 basis points this year to 2,349 basis points,
according to data compiled by Bloomberg.

While President Cristina Fernandez de Kirchner has vowed to
never pay holders of the nation’s defaulted debt that she’s
dubbed “vultures,” her government has said it’s committed to
continue servicing its performing bonds.

“We have paid our debt without borrowing from capital
markets, with our own funds,” Fernandez said in a Nov. 28
speech in Buenos Aires. “We’ll continue to honor our
commitments.”

Since 2010, Argentina has used central bank funds to pay
international creditors. This year it earmarked $8 billion of
reserves to pay the total $10.3 billion it owes. The country’s
reserves have fallen $1.5 billion this year to $41.8 billion.

Bank of New York Mellon Corp., trustee for restructured
Argentine bonds, said in a Dec. 28 filing to the appeals court
that Griesa’s ruling would force it to violate contracts.

‘Technical Default’

He ordered BNY Mellon to help carry out the ruling by
withholding funds from restructured bondholders until Argentina
pays principal and interest on defaulted debt, according to the
bank’s filing.

Even if Fernandez ignores the court ruling and tries to re-route payments for its restructured debt, it would still trigger
a “technical default,” Nieves at Puente said.

“The market is pricing in a technical default, where the
terms of the bonds are changed even if holders continue to get
paid,” she said in a phone interview. “Because of that risk,
we prefer to have positions in local-law bonds.”